Brad Feld Drops Some VC Knowledge

Brad Feld is a fountain of knowledge & wisdom. I had the chance to sit down with him for an hour and ask him loads of questions that I thought you'd enjoy hearing. If you have time check out the video (or download on iTunes -- Episode 27 -and listen at the gym or on your commute!).

Or, as always, summary notes available below.

Huge thank you to Steve De Long for the write up. I owe ya' a 20 minute call (or in person next time I'm in San Diego).

This video discusses a wide variety of interesting topics including Brad's personal history and his beginnings in Venture Capital going back to the mid 1990's; the beginning of blogging in the VC community and Brad's seminal Term Sheet series; a relatively deep dive into the Foundry Group investment philosophy including a discussion of their "Themes" and deal evaluation process and much, much more. The following is a brief series of quotes from just ten of the approximately 30 different topics discussed in this incredible interview.

1.Brad on blogging.

How did you start blogging?

"My initial desire to blog came from something that's always been my approach to investing -- I'm a nerd and I love to play with the technology and part of my approach has really been to understand things both at a user level and at a reasonably deep tentacle level. In 2004 / 2005 I was starting to get intrigued with user-generated content. RSS was something that had appeared." "….I decided well if I am going to be investing in this stuff at least I need to understand what it's like to have a blog, to be generating content, and it was quite interesting at the very, very beginning."

"Some of it was about the tools and understanding how the tools fit together and that was quite nascent but at the same time it was also about just the emotional response of going from a subscriber to 10 subscribers to 100 subscribers" "…then what happened is I decided I wanted to write some sort of longer form things and I wrote with my partner Jason Mendelson a term sheet series and we wrote I don't know 30 posts decomposing a term sheet."

Is that when it became big?

"Yeah, that was when I changed for me…" "…there was so much positive feedback on demystifying this one element of venture capital. "This time frame -- 2005/2006 -- web 2.0 was starting. There was a lot of consumer internet activity again…resurgence of things, but it was still mysterious, venture capital was still kind of closed, 1st time entrepreneurs had a lot of questions that were unanswered, and there was still some sort of hand waiving around all the financing stuff and so we took it on…."

2.The value of Pitch Decks; Brad's personal preferences on deal presentation; and Brad's practice of accepting cold approaches via email.

Are Pitch Decks becoming obsolete?

"…It's interesting that the question is pitch deck's being obsolete versus business plans being obsolete. So very few investors want Business Plans any more. But, in fact, I would rather have an executive summary than a pitch deck. And I would rather, even before the executive summary, have something to play with (a demo)…" It falls in the category of show don't tell. The problem with pitch decks is pitch decks tend to have a lot of fluff in it. Either it's a bunch of pictures or screen shots or it's a bunch of words. Very few people can do a good job with a presentation that is emailable."

Aren't pitch decks still the norm?

"I think you have to listen to the queue's." "…if you look at a lot of the early stage investors, whether it be Union Square Ventures or First Round or Jeff Clavier at Softtech or Dave McClure -- we want to try the product, we want to experience the product, we want to get a sense of how the entrepreneur is thinking about it. You still need the presentation to back that up. If you are going to do the tour up and down Sandhill Road to try and raise your 1st round of financing you need a pitch deck because the vast majority of those meetings you are going to be sitting around a table and you will be presenting to one or more partners and that is going to be your first engagement."

You have said outloud anyone can send you an email, is that fair?

"Yeah, my email address is Brad@Feld.com. My twitter address is @bfeld -- tweet me. My Skype address is bradfeld. It's all on my website. I'm delighted to get emails from anybody. It doesn't overwhelm me. I'm very quick to say whether or not something is in an area that interests me. (see deal evaluations the Foundry way)"

3.A deep dive into the Foundry Group investment philosophy including an interesting discussion of their investing Themes.

"… our lens is: Internet Software Companies anywhere in the U.S. So if you are outside the U.S. we are not going to invest. If you are outside internet software we are not going to invest. And then within internet software we then have a series of themes and our themes are very broad horizontal themes. For example we have a theme we call human computer interaction, a theme we call Glue -- which is a software layer that glues things together on the internet. We have a theme we call Protocol, which are technology protocols and markets built around technology protocols like SMTP for email and RSS. So we have five themes -- Digital Life and Distribution are the other two."

Human Computer Interaction
Glue
ProtocolDigital Life
Distribution
Adhesive (new -- Glue for Adtech)

4. Deal evaluations the Foundry way, which continues into a great discussion about VC decision-making processes.

"So if you don't fit within one of our themes we say no right away. I should be able to say no within 60 seconds. So we can say no based on geography, we can say no based on it doesn't fit in our themes."… "Then we engage with the product and the entrepreneur and because we know these areas very well we don't have to spend a lot of time understanding the market or understanding the customer."

And because you are all investing in the same areas you get an intuitive feel for it?

"One of our principles -- and we call them deeply held beliefs -- one of them was that we are all going to invest in the same things"… "I think it is useful for the entrepreneur to know what he is encountering because every firm has a different process. And especially if you are dealing with early stage firms where partners might have different areas of specialization but they might have a lot of connective tissue across things. That's very different than a firm where you have the sector approach. And that's very different than a firm where you have an IT team and a Clean Tech Team and a Bio Team or an early stage team and a late stage team."

5.Brad's start in Venture Capital. Mobius.

"My startup business was acquired and I worked for the company that bought us; which was a public company called Ameridata that bought about 40 companies in about three years. So I was on the front line of this very aggressive rollup and I got involved in helping with the technical due diligence…"

"As a result I got to see some deals and get involved with some deals and I made some investments with my own money. So I was an Angel investor from 1994 to 1996. One of the successful investments was a company called Nigenisis, which ended becoming a public company in 1999. Was about a billion dollars on the IPO" and "was one of the first web analytics companies. I was an early investor in a company called Harmonics which ended creating Guitar Hero … that got bought by Activision and then the rest of the company got bought by MTV and they created RockBand. "

In 1996 got connected up with Softbank which was investing very aggressively in the U.S. And they made an early investment in Yahoo." "….a couple of people that worked for Softbank plus me got together and with sponsorships from Softbank created a separate venture fund."

6.Techstars

Was it David Cohen' Idea? And how do you know David?

"It was David's idea." "Well I didn't know David. I do something I now call community hours. I used to call it random day." … "So David showed up on one of these random days. And sat down and had a little brochure he had printed on his laser printer or had taken to Kinko's and it was this idea for Techstars."… "And five minutes after he started talking about it I said dude I'm in. Let's start figuring out how to make this happen." "…and the premise for Techstars was the worst case we would attract some new smart people to Boulder."

And how has it worked out?

"It has worked out great. So we had probably had well this is the fourth year we've done it in Boulder. We just finished the second year in Boston. And we are just starting our first year in Seattle."…" Of the Boulder companies there have been 41 companies that have gone through the Boulder program and there is some mortality…" "I guess it's 5 or 6 that have failed. All the results by the way are up on line. It's techstars.org/results."

"I'd say about a third of the companies were people in Colorado already and they obviously stayed and of the remaining 7 companies a year or so there or four of them ended up staying. And so that is a steady import of talent but even more interestingly what it really did is it re-energized the entrepreneurial community."

7.Venture Capital in Boulder and other smaller communities.

"So having spent a lot of time thinking about this Silicon Valley is a thing in and of itself. So everybody goes through this phase of we want to be the next Silicon Valley. That's the dumbest thing you could try to do. The thing you should do is study Silicon Valley and try to understand what's great about it and try to institutionalize within your community some of those things. One of them is this notion that there is a constant influx of new entrepreneurs into the system so new entrepreneurs either out of college or moving there because they want to be there and then those entrepreneurs have easy access in functional ways to experienced entrepreneurs, angel investors, and VC's.

And that that cycle continues so as the early stage first time entrepreneurs get experience…" "They turn into the mentors for the next generation. And it's that combination with a long-term view. So I think it takes fifteen or twenty years to build a real entrepreneurial community…"

8.Product Management -- Brad and Mark discuss the role of Product Managers in Startups.

One (thing) we have talked about in the past is a lack of Product Managers, experienced technology Product Managers. (in LA and Boulder) Is that true? And how do you overcome that?

"So I think the hardest role to fill in a startup is a Product Management role. Especially one that is growing quickly…" "I used to think you needed to go out and find experienced PM's. I think you can actually teach people how to be PM's but there is a certain characteristic that somebody has to have if they want to be a great PM and that is essentially a phrase that Mark Pincus at Zynga uses all the time and that is be CEO of your job. And the PM is the archetypical CEO. If you are a Product Manager for a specific thing you have to deal with it just like a CEO has to deal with the whole company. That is a personality type. And what happens is you have a lot of people that are either engineering or non-engineering that end up in PM roles that can't think across the whole thing… "

9.On the Startup Visa Program.

"…I've been involved with about a half dozen people in creating something now called the Startup Visa. If you go to www.startupvisa.com you can read about the initiative. There is a bill in the House, actually there are two bills in the House, and one in the Senate."…" essentially trying to create a visa for entrepreneurs, for foreign entrepreneurs, that are trying to come to the U.S. and get investment from U.S. investors." "It turns out that of all the visa types it is extremely difficult for a foreign entrepreneur, even if he is already in the U.S. on an H1 a student visa or something else, to get a visa that is valid to start your own company."

Is this going to be bundled into Immigration Reform?

"Well, it could be."…"My view is it's a jobs bill. I don't care that much about it being part of immigration reform. It is actually not adding more Visas'. It's modifying existing Visa types and what has happened recently is we built a steady drum beat, very solid grass roots momentum and support, plenty of endorsement, Venture Capital community pretty broadly endorsed it. National Venture Capital Group endorsed it. Some Angel groups endorse it. More recently some Chamber of Commerce's have started to endorse it."

10.Oblong, Minority Report, and the rise of Spatial Operating Systems.

You have a company called Oblong (in your portfolio) which is a Minority Report type company. What is your vision or Oblong's vision of where all this is heading…

"So Oblong is here in your backyard as you know in L.A. and one of the founders of Oblong, John Underkoffler, was an MIT Medialab PHd., actually did the fundamental research in the 90's at the Medialab. And then was hired by Stephen Spielberg for Minority Report. And he is the guy who created the user interface paradigm."

The Oblong guy, literally?

"Yeah, when people say Minority Report John is the Minority Report guy. And after that he did some other work with Spielberg. And that is how he ended up in L.A. but he had a vision of commercializing this work that he had done and this simple notion that frames it is that twenty years from now we will look back on the mouse and the keyboard and it will look quaint the same way that punch cards look quaint."

What time frame are we going to see for this to impact our consumer lives?

"They are releasing their first commercial product in Q4."…" So you will see the instantiation of this first in video conferencing at the higher end. At the low end, you will see it in the context of video games."…" We actually think the software model that Oblong started with is a more compelling path down than the sort of consumer tech path up. And I think that is because the actual challenge of dealing with a lot of this stuff is very software and compute intensive and not sort of hardware trickery. The hardware trickery doesn't scale very well. And so you really have a log of software algorithmic stuff that is very, very difficult."

[there is so much more in the video so if you feel inclined make sure to check it out on YouTube or iTunes (episode 27).]

Reprinted from Both Sides of the Table

Mark Suster is a 2x entrepreneur who has gone to the Dark Side of VC. He joined GRP Partners in 2007 as a General Partner after selling his company to Salesforce.com. He focuses on early-stage technology companies. Follow him at twitter.com/msuster.

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